Monday, July 22, 2013

Earnings Commentary: Goog and Verizon



Hello again,

Hope everyone had a nice weekend. I am here to share my two cents on second quarter earnings for GOOG (Google Inc.) and VZ (Verizon).  Earnings for said companies were reported this past Friday 07/19/2013.


Earnings for GOOG were not up to analyst expectations. The main issue behind the not-so-favorable earnings seems to be related to a decrease in Cost Per Click revenue. In a nutshell, cost per click refers to the average fees (or CPC’s) that companies pay Google every time someone clicks on their ads. Truth is that over 90% of Google’s revenue comes from advertising.

Although Google currently has a lot of exciting high-tech projects in the works, some of which have been recently launched;  the bottom line is that we have to focus on the present moment and at the present time bulk of the revenue comes from advertising.

The decrease in ‘cost per click’ seems to be tied to the increase in people using mobile devises instead of actual desktop computers (or laptops) to go on the internet. If the amount of “actual clicks” goes down then revenue for Google in this aspect will tend to go down as well (interesting how the popularity of one thing can significantly affect rate of usage for another). The good news is that the decline in cost per click was only 2% in comparison to last quarter’s decline of 4% which shows an improvement. However it’d be interesting to know what is behind this improvement and important to keep an eye on this trend on subsequent quarters for google as the usage of mobile devises continues to increase exponentially faster than we can say Mississippi. Would you agree?

On a personal level, I still feel strongly about this stock and is another one of my long term acquisitions. The truth is that Google remains the #1 search engine site in the US (and some places abroad) with minimal competition (Yahoo! Comes in as a far second). Although many analysts believe it is currently fairly priced (trading at $909.69 as I type this) price is a little bit too high for me to continue adding to my position. Hence, I will maintain a HOLD position for now. Looking forward to seeing how goog continues to evolve and finds creative ways to remain well ahead of any competition. I remain bullish on this stock.

Something to add: In an effort to diversify their business and remain competitive; goog recently acquired Motorolla and has launched smart phones, tablets and laptops. The other day I passed by Best Buy and noticed a “google” station which I found pretty cool:




Has anyone else seen it? What are your thoughts?
Fun fact: Currently less than 10% of Goog’s revenue comes from anything other than advertising but this may very well change in the future.


Verizon
 
I am happy to share that Verizon Communications reported some pretty amazing news during their most recent earnings announcement for second quarter 2013. Verizon pretty much presented increases in all favorable areas. Here are some of the ones that caught my eye the most (Courtesy ofInvestor Relations at Verizon.com):

• Cash flow from operating activities totaled $17.1 billion in first-half 2013, compared with $15.3 billion in first-half 2012.

• Operating income increased 16.0 percent, to $6.6 billion in second-quarter 2013, compared with $5.7 billion in second-quarter 2012. Operating income margin was 22.0 percent in second-quarter 2013, compared with 19.8 percent in second-quarter 2012.

• Consolidated EBITDA (non-GAAP, earnings before interest, taxes, depreciation and amortization) increased 9.5 percent year over year, totaling $10.7 billion in second-quarter 2013.

• Total operating revenues in second-quarter 2013 were $29.8 billion, a 4.3 percent increase compared with second-quarter 2012.

In terms of costs or expenses to keep an eye on it is important to mention that VZ plans to increase their capital spending guidance from $16.2 billion to $16.4/$16.6 billion for full year 2013 as the company anticipates higher demand for wireless data consumption and as it begins deployment of Advanced Wireless Services during the second half of this year. * Capital Expenditures increased by .2 billion from first half of 2012 to first half of 2013.

Isnt it interesting that Goog is “suffering” due to the increase in mobile use while Verizon’s revenue is up because of that same reason? (although they will have to incur some expenses as this demand increases, as previously noted). Interesting how everything connects one way or another on a general spectrum.

Personal thoughts: Considering all the favorable news on Verizon quarter after quarter I remain bullish on the stock. And again, is a long term addition to my portfolio. I am not adding any additional shares at the present moment but remain optimistic on Verizon’s future. The stock is currently trading at $50.24 per share. I’ve also been a Verizon customer for over 10 years! (pretty insane) and its service is bar to none in comparison to other phone companies so I’ll have to stick with this one for a bit although I do complain to my friends about my Verizon bill from time to time (full disclosure here! Ha!).
 
FYI-- *As of end of trading day today (7/22/13) both, GOOG & VZ,  are up in price in comparison to their adjusted closing price from Friday 07/19.
 
Thanks for reading!!

Tell me, what are YOUR thoughts on companies like Verizon and Google?

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Additional Sources:
Montley Fool: Google
Yahoo! Finance